Health Costs and Payment Structure
Expenditures for health and medical care have risen steeply over the past few decades.
In 1960 national medical expenditures came to $24 billion; in 1965, $36 billion; in 1981, $286 billion; in 1993, $884 billion, and in 1995, an estimated $1 trillion. Physicians take in about 20% of these sums, hospitals 40%. Some of the remaining costs go for medications and pharmaceuticals (10%) and for public health activities, research, construction, and planning. Private health
insurance covers about one-third of the medical care costs. There is rising concern over the inadequacy of private insurance coverageÑboth in that 17% of the population, 40 million people, are not covered at all, and another 40 million are only partly covered for some illnesses or for some part of the year. In 1992 health insurers took in $216 billion in premiums and paid $185 billion against claims.
Government insurance is of several kinds. For the elderly there is Medicare, partly paid for by a tax added to the Social Security tax ("Part A"); partly paid for on a voluntary basis like other health insurance, but into a government trust fund ("Part B"). Part A pays most hospital costs after a deductible; Part B pays 80% of doctor bills incurred, after a deductible, and for some home health services (see social security). Medicare expenditures were estimated to be $183 billion for 37 million recipients in 1995.
A large government tax-supported medical-care cost-payment program, Medicaid, is targeted on the poor; it served 32 million people at a cost of $92 billion in 1993. Much of the Medicaid budget goes to the care of the elderly also, as Medicaid pays for a large part of nursing home care, which Medicare does not cover. While 50% of Medicaid recipients were children and only 9% were elderly, 12% of the money went to cover expenses for nursing home care for the elderly, and only 32% for children.
Another government program pays for some of the medical care for the families of military personnel or retireesÑthe Civilian Health and Medical Program for the Uniformed Services (CHAMPUS). This too is structured like the usual health insurance, with the government acting as the insurer.
There are many other federal governmental health programs, not specifically directed to medical care, which involve various agencies of the U.S. Department of Health and Human Services. The Centers for Disease Control and Prevention, the National Institutes of Health, and the Food and Drug Administration are all part of the DHHS.
The most visible and controversial government financial participation, however, that for Medicare and Medicaid, contributes to the costly mix of public and private payments in a fragmented and largely disorganized system. Despite some efforts at control, the system remains costly. While much attention is directed toward stemming governmental expenditures, costs are bound to continue to rise because of three factors: increasing population, increase in technological developments, and an aging population.
Efforts at cost control include limitation of both supply and demand. Since the 1970s, supply controls have been the subject of legislative mandate or administrative regulation. Both federal and state governments have tried to reduce the proliferation of hospital beds and complicated and expensive technological devices by demanding certification of need, by refusing to approve or pay for the costs of acquisition, and holding up approval of insurance payments for services.
Demand control has been organized around the idea of "managed care." This has fostered the growth of HMOs, in which a general practitioner is the "gatekeeper" through whom access to consultations, laboratory tests, X-ray examination, or other special diagnostic tests and hospital admission has to be authorized. Outside of the HMOs, insurance companies have organized managed care by requiring that their office authorize a physician to prescribe consultation, testing, or hospital admission, refusing to pay for unauthorized usage. Some companies offer a list of suitable physicians that a client may use, and refuse to payÑor pay only a limited amount toÑother physicians.
Critics claim that the managed-care technique dangerously encroaches on a physician's medical judgment. The need to clear medical service with a clerk or even a nurse at the other end of a telephone may have grave consequences for the patient. Some HMOs make it a condition of a physician's salary that he or she not overstep the bounds of insurance costs and so jeopardize the HMO income. This raises questions of whether the physician may be tempted to limit needed services or fail to take adequate steps to establish a diagnosis; these procedures could lead to too early discharge, as patients are sent home from the hospital "sicker but quicker." In any case, there remains some doubt whether managed care actually reduces costs.
Nevertheless, some HMOs like the Puget Sound Group Health Cooperative receive high praise for quality, satisfaction, and economy. The effective design includes the cooperative element, in which a board of clients hires a group of doctors, monitors their activities, and jointly negotiates a budget. Many fervent adherents of HMOs look to the Puget Sound model as the wave of the future.